Asia Pacific Viewpoint, Vol. 48, No.

3, December 2007
ISSN 1360-7456, pp344–354

The geographic impact of ‘open skies’ policies on

Trans-Tasman air passenger service
Timothy M. Vowles* and Sean Tierney†
*Department of History, Colorado State University, B356 Clark, Fort Collins, CO 80602, USA.
Email: timothy.vowles@colostate.edu
†Department of Geography, University of Denver, Boettcher Center West, 2050 East Iliff Avenue, Denver, CO 80208, USA.
Email: stierney@du.edu

Abstract: The goal of this paper is to examine the various geographic shifts occurring in New
Zealand air passenger service as a result of the liberal aviation policies pursued by the country. A brief
history of New Zealand air passenger travel both domestically and internationally will be followed by
a more in-depth investigation into the impacts of the single aviation market between New Zealand
and Australia, first negotiated in 1992, subsequently altered in 1996 and, in its present form, agreed
to in 2000. Particular attention is given to the increased competition that has arisen in the Trans-
Tasman market, making it one of the most heavily contested routes in global aviation. The Trans-
Tasman is analysed at a variety of levels, including airline competition, market growth, and fare
changes that have occurred in the five years since the ‘full open skies’ agreement came into effect.

Keywords: air transport, airline liberalisation, Trans-Tasman, transport geography, New Zealand

Introduction and liberalisation. The paper begins with an

examination of air transport agreements, with a
Called one of the most competitive aviation
particular focus on liberalisation and deregula-
markets in the world (Daniels, 2004), the Trans-
tion around the world and within the Australasia
Tasman aviation market between Australia and
region. The Trans-Tasman market is then exam-
New Zealand demonstrates the positive and
ined with areas of particular interest, including
negative results of liberalisation of air traffic
shifts in enplanements, carriers and destinations
agreements, particularly open skies agreements
served, with a particular focus on the growth of
and ‘single aviation markets’. In the five years
non-Tasman-based carriers and low-cost carri-
since the ‘full open skies’ agreement came into
ers. The focus is on the Trans-Tasman market
effect, the market has seen a number of carriers,
as whole and also on the individual markets
both domestic and international, enter the
making up the greater Trans-Tasman market.
Trans-Tasman. The range of carriers serving the
The market is explored from the New Zealand
market covers the entire spectrum of airline
perspective, as New Zealand has the most
business models, from the opulent international
liberal aviation policies of the two Tasman
carrier Emirates, to low-cost carriers and ‘carrier
nations.
within carriers’, such as Pacific Blue in the
former case and Freedom Air in the latter. Not to
be forgotten are the two big incumbent interna-
The current environment
tional carriers for the countries on either end of
the Tasman: Qantas, representing Australia, and As World War II concluded and the physical
Air New Zealand from New Zealand. landscapes of both Europe and Japan were left
The purpose of this research is to analyse the in ruin, only the United States possessed the
Trans-Tasman aviation market by focusing on strength to launch and sustain a viable commer-
current and historical industry conditions and cial airline industry. With such an advantageous
trends through the framework of deregulation position, it was at the Chicago Convention in

© 2007 The Authors doi: 10.1111/j.1467-8373.2007.00352.x

Journal compilation © 2007 Victoria University of Wellington

1944 where the United States pushed for inter-
national open competition in air service under-
lined by national ownership of the airlines
(Oum, 1998). Other countries, led by New
Zealand, favoured the creation of an inter-
national aviation authority, which would be
responsible for air service operation and, in
addition, would own the aircraft and ground
equipment (Richards, 1999). In the interest of
sovereignty by all participating countries at the
convention, those proposals were appropriately
rejected.
Since then, all international air service has
been negotiated with bilateral agreements
between foreign governments. Bilateral agree-
ments determine routes, flight frequencies and
the extent to which carriers enjoy certain free-
doms in other countries, while also aiming to
guarantee some semblance of equity between
the airlines of each signatory country, so with all
things being equal, no individual airline is at a
competitive disadvantage. Among the important
issues negotiated with aviation agreements,
whether they are bilateral, multilateral or pluri-
lateral, are safety, security, economic and social
impact, as well as ownership restrictions (Chang
et al., 2004).
Bilateral air service agreements became the
norm in the half-decade following the deregu-
lation of the US airline industry in 1978. By
1982, the United States had entered into 23
agreements, greatly expanding the US service to
both Europe and Asia (Oum, 1998). However,
by 1992, as the global demand for air travel was
increasing, the trend had shifted from bilateral
agreements to a more broad ‘open skies’ policy.
More liberal than bilateral agreements, open
skies agreements sought to remove government
interference and bring about increased compe-
tition, improved efficiencies and lower prices
on international routes. Once signed, an open
skies agreement permitted the near-unrestricted
air service between signatory states as airlines
could make decisions on routes, capacity,
pricing and the ability to enter into code-sharing
arrangements (US Department of State, 2006).
Restrictions remained on a few items, most
notably cabotage. Singapore became the first
Asian country to operate under an open skies
agreement with the United States in 1997, with
several other Asia Pacific countries, including
New Zealand, following suit later that year
© 2007 The Authors
Journal compilation © 2007 Victoria University of Wellington
Geographic impact of ‘open skies’ policies
(Chang et al., 2004). It was not until 2001 that
the first multilateral open skies agreement, the
Multilateral Agreement on the Liberalization of
International Air Transport, was signed, and it
now includes eight countries: New Zealand, the
United States, Singapore, Chile, Samoa, Brunei,
Peru and Tonga.
Several very liberal open skies agreements
exist today, including one between Australia
and New Zealand and the one between the
United States and Canada. In the case of the
very broad agreement between the United
States and Canada, very tangible results have
been produced. Within the first year, 102 new
routes were added, resulting in a 30% increase
in seat capacity (Button and Taylor, 2000).
However, according to Button (1997), the most
important open skies agreement is the one
between members of the European Union (EU).
This regional agreement is the most progressive
in the sense that aviation was treated as any
other industry within the economic liberalisa-
tion framework. Cabotage rights abound for all,
as service within the EU could be offered inter-
nationally or domestically by any member
airline.
There are a number of regional aviation pacts
around the world, including the EU; a Mercosur
bloc including Argentina, Bolivia, Brazil, Chile
and Paraguay; and a pact between New
Zealand and Australia, while a more restrictive
agreement has been signed by Thailand, Indo-
nesia and Malaysia. As more and more of these
regional pacts are signed, the question arises
whether they will lead to increased global inte-
gration within the aviation market or to more
isolationist policies within each bloc (Elek et al.,
1999).
Problems with open skies agreements
Oum (1998) highlights the inherent conflict of a
competitive open skies agreement when one of
the participating countries has only one airline.
These scenarios tend to be unfavourable for
consumers, as national (flag) carriers are more
likely to negotiate in their best interests, relegat-
ing their customers’ well-being. Countries with
a more competitive domestic aviation system
will favour open skies agreements, as these air-
lines are already used to operating in a highly
aggressive pricing environment. Route and
345
 T.M. Vowles and S. Tierney
service expansion to new international markets
provide additional revenue opportunities.
Within the negotiating process, Oum (1998)
cites a problem as it relates to the fifth
freedom and gauge rights. Fifth freedom
enables domestic airlines to pick up passen-
gers in foreign countries and take them on to
third countries. Gauge rights references the
ability of an airline to use a smaller (or differ-
ent) plane for that next leg of the trip. Presum-
ably, in a transpacific market, only long-haul
(large) jets are used, and yet when the next leg
is flown (taking advantage of the fifth
freedom), a smaller plane might be desired.
Gauge rights are considered a ‘restriction’ to a
truly open skies agreement. Yet countries are
always seeking to improve their competitive
position in other parts of the world.
As a result, a powerful country like the United
States will sign a restrictive open skies agree-
ment with one country, and then soon after-
wards seek another partner in the region that
might now have an incentive to sign a similar,
yet more relaxed open skies agreement. In other
words, the pressure to allow gauge rights (or
remove any previously agreed upon restrictions)
increases when an open skies agreement is
reached with a geographically substitutable
neighbour (Elek et al., 1999).
We can see this playing out in Asia, where
many countries have bilateral agreements with
each other, which are, however, highly restric-
tive. Some have equal benefit clauses that
mandate an equal number of passengers and
flights between countries. In other words, these
agreements enable competition by allowing
flights between countries, and restrict competi-
tion at the same time, by limiting the frequency
of those flights. Meanwhile, the United States is
in the process of negotiating open skies agree-
ments with several Asian countries that will not
impose these sorts of fifth freedom restrictions.
In essence, the competitive landscape could fall
out from under Asian carriers, as US carriers,
with no fifth freedom restrictions, begin scoop-
ing up passengers between Asian countries
(Oum, 1998).
Many believe this is akin to foreign airlines
being granted cabotage rights within the US
market. Since most Asian countries have modest
amounts of domestic traffic (given their small
geographic size), it is the higher volume of inter-
346
Journal compilation © 2007 Victoria University of Wellington
national traffic which is more desirable. In other
words, beyond rights within Asia would essen-
tially give US carriers access to the lion’s share
of aviation traffic within Asia (Oum and Lee,
2002).
As such, the idea of ‘open clubs’ as a more
integrated and less protectionist approach is
gaining traction as a way to create competition
in a global aviation market. As ‘club outsiders’
become aware of the specific requirements a
country needs to satisfy in order to gain access
to the club, the competition becomes less
discriminatory. Among the ideas discussed are
non-discrimination between members, trans-
parency, accession and review (Oum and Lee,
2002).
Weber and Dinwoodie (2000) and Forsyth
(2001) highlight the role that relaxed ownership
rules are having in the theatre of open skies
negotiations. Historically, airlines were owned
within a particular country, which makes it
easier to defend a particular stance with respect
to protecting a national carrier. Recently,
however, the barriers of ownership are eroding
and the lines marking a particular country’s
national interest in aviation are now more
blurred. Furthermore, airline alliances and
code-sharing arrangements are making it
increasingly difficult to define trade in aviation
service, as one airline may sell the ticket, and
yet that passenger will never set foot on that
airline or in the ‘home-country’ of that airline.
Through code sharing, it is possible for an
airline to profit more from the sale of the ticket
than from actually delivering the service
(Forsyth, 2001).
Nevertheless, restrictions on airline owner-
ship play a role in open skies agreements, as
nearly all countries have foreign-ownership
restrictions (Oum and Park, 1997). Currently,
Chile is the only country in the world where
no limit on foreign ownership of its airlines
exists, while the United States and Canada are
particularly restrictive, setting the maximum
level of foreign ownership at 25% (Chang
et al., 2004). Both New Zealand and Australia
have imposed a 49% ownership limit on inter-
national carriers; no limit exists on purely
domestic carriers (Kissling, 1998b). Given the
financial woes of many carriers around the
world, expanding foreign-ownership rights of
airlines, removing airport access restrictions
© 2007 The Authors

and adopting a broader plurilateral open skies
policy would serve to create a truly global
system (Button and Taylor, 2000). It would also
serve to rid the system of its barriers, bringing
about enhanced consumer benefits, and
enable many of these carriers to restore their
financial footing.
Oum and Park (1997) and Kissling (1998a)
discuss how in the absence of open skies agree-
ments and given the restriction on foreign own-
ership levels, airlines seek to form alliances in
order to gain access to foreign markets. Alli-
ances help many airlines enlarge their interna-
tional network and bypass the friction that
typically accompanies bilateral or open skies
negotiations. These alliances can take three
forms: type I (route-by-route alliance), type II
(broad commercial alliance) and type III (equity
alliance), with type I alliance representing the
majority of agreements (Tretheway and Oum,
1992).
The future of open skies negotiations
Countries or governments with only one carrier
tend to provide more obstacles in the negotiat-
ing process of an open skies agreement because
of protectionist desires for its domestic corpora-
tion. However, according to Oum (1998), it is
recommended that open skies negotiations be
included in broader goods and services nego-
tiations so that member states can benefit from
the theory of comparative advantage. Several
authors, including Forsyth (2001) and Oum and
Lee (2002), go a step further, claiming that
aviation policy could do quite well should it
be governed by a larger regional body, for
example, the General Agreement on Trade and
Services or the Asia-Pacific Economic Coopera-
tion. Open skies agreements are signed to incite
competition, and with competition there are
winners and losers. So, for the country whose
national carrier is put out of business by another
country, their job base should benefit in other
industries.
For example, within the open skies agreement
between the United States and Canada, Cana-
dian authorities transferred the operating rights
of four major airports (Edmonton, Calgary, Van-
couver and Montreal) over to local authorities.
These authorities, with the encouragement of
their local business constituencies, were able to
© 2007 The Authors
Journal compilation © 2007 Victoria University of Wellington
Geographic impact of ‘open skies’ policies
better balance the interests of both the airlines
and the local businesses that would benefit as a
result of the perceived traffic increases (Oum,
1998).
The fundamental relationship between air
transportation and tourism suggests that cheap
airfares are tied to rising tourism receipts.
Abeyratne (1999) points out how small island
developing states benefit with more liberal air
transportation initiatives in order to lure foreign
tourists and their hard currency. New Zealand
and Australia, although not small island devel-
oping states, also rely on tourism as a major
component of their economies. Therefore, if
international air service into New Zealand, for
example, is too expensive and discouraging
tourist visits, the impact is felt throughout the
economy (Kissling, 1998a). This policy of maxi-
mising the economic benefit for New Zealand,
according to Bradbury (2004), has been in place
since 1985 and has been a driving force behind
many of New Zealand’s external aviation liber-
alisation decisions. More bluntly, Bradbury
stated that ‘the interests of New Zealand airlines
should not be permitted to override the coun-
try’s broader interest’.
Some countries enjoy tremendous competi-
tive advantages over other countries within a
bilateral or open skies negotiation; in these sce-
narios, certain restrictions on competition can
be arranged. In the case of the US–Canada open
skies policy, Canadian carriers were allowed
immediate access to US markets, when US car-
riers’ access to Canadian cities (because there
were far less desirable cities to serve) was
phased in over a period of years (Oum, 1998).
Along these lines, Forsyth (2001) claims that
international aviation agreements need to
consider the consumer, tourism, the airline
company and the interest of the employees. By
doing so, less friction might exist at the open
skies negotiating table, as many countries might
be more willing to let their flag carrier fail than
receive a net-jobs expansion in another indus-
tries. It is important to note how local interests
do not always favour competition and lower
fares. In instances where a country is a net-
exporter of tourists (e.g. Japan) local industries
will push for higher international fares to keep
their people from travelling and encourage the
Japanese people to keep their ‘tourist’ money in
Japan.
347
 T.M. Vowles and S. Tierney

Australia–New Zealand open skies today
The ‘single aviation market’ between Australia
and New Zealand was first negotiated in 1992,
completed four years later in 1996 and put
into full operation as a truly open skies agree-
ment in 2000 (Bradbury, 2004). This agreement
not only liberalised air traffic between the two
countries but also opened up the market
between the countries, known as the Trans-
Tasman, to other airlines from other countries.
Key operational components of the agreement
include unrestricted service between the coun-
tries as well as domestic service within either
of the two countries. This accord affects not
only air passenger transport but air cargo trans-
port as well. Additionally, this agreement
includes seventh freedom rights for the carrier
of either country to operate international
service from the other’s airports without
having to connect the service back to the
home country of the operating carrier. The
ensuing liberalisation of the Trans-Tasman
market produced an additional benefit of addi-
tional competition from other international
airlines, the result of New Zealand’s liberal
stance towards air freedom rights. New
Zealand granted fifth freedom rights, enabling
international airlines to carry passengers from
a home country to another intermediate
country, and then fly on to a third country with
the right to pick up passengers in the interme-
diate country. These fifth freedom international
carriers, particularly Emirates, and low-cost
carriers, such as Pacific Blue, have made the
Trans-Tasman market one of the most highly
competitive air transport markets in the world.
Trans-Tasman market
The Tasman route is the busiest air route in and
out of New Zealand both in terms of the volume
of passengers carried and in terms of the
number of airlines operating, with 11 passenger
airlines and four cargo airlines offering services
between Australia and New Zealand. In 2004,
there were over 4.6 million passengers in the
market, up from the nearly 3.3 million passen-
gers in 2000, the year the ‘single aviation
market’ between Australia and New Zealand
was first fully instigated. Figure 1 shows that as
a whole, the Trans-Tasman non-stop market
consists of air service between seven New
Zealand and seven Australia airports. This
analysis will only concentrate on these non-stop
markets because of the lack of data for markets
behind these gateways, especially in New
Zealand, up to 2004. The majority of the traffic
in the market, shown in Table 1, is focused on
three Australian centres – Sydney, Melbourne
and Brisbane – and one in New Zealand –
Auckland. Two other New Zealand airports,
Christchurch and Wellington, are important in
their respective regions but only enplane a frac-
tion of the traffic Auckland generates.
Figure 2 shows that 10 different airlines
offered passenger service in the market in 2004.
Jet Star began service in the fourth quarter of
2005. These airlines can be broken into two

Table 1. New Zealand airport Trans-Tasman passengers, 1994–2004

Year Auckland Christchurch Dunedin Hamilton Palmerston North Queenstown Wellington Grand total

1994 1 420 367 540 506 142 – – – 257 119 2 218 134
1995 1 510 874 549 570 2 779 16 484 1 643 271 236 2 352 586
1996 1 616 253 597 177 18 907 67 587 5 341 1 483 292 213 2 598 961
1997 1 615 563 579 081 30 903 72 989 21 751 1 786 310 111 2 632 184
1998 1 638 256 591 101 29 638 64 460 25 264 4 873 352 649 2 706 241
1999 1 695 025 615 613 34 967 74 647 37 787 11 501 375 574 2 845 114
2000 1 934 095 703 599 45 965 107 339 73 600 15 235 402 269 3 282 102
2001 2 134 964 772 861 55 193 107 198 72 947 18 444 430 178 3 591 785
2002 2 128 828 701 681 75 337 115 722 79 380 26 288 425 252 3 552 488
2003 2 405 862 774 284 78 755 108 382 71 615 19 002 412 290 3 870 190
2004 2 805 112 1 042 621 89 255 104 714 79 803 24 966 518 769 4 665 240

Table compiled from Australia Bureau of Transport and Regional Economics, Department of Transport and Regional Services
data.

348 © 2007 The Authors

Journal compilation © 2007 Victoria University of Wellington
 Geographic impact of ‘open skies’ policies

Figure 1. Trans-Tasman airline market, 2005

Trans-Tasman Market Share 2004 major categories: Australia/New Zealand-based

Thai Airways International
carriers and outside international carriers. The
2%
Aerolineas Argentinas
two major Australia/New Zealand-based carri-
Royal Brunei Airlines
1% 1% ers are Qantas and Air New Zealand, respec-
tively. Each of these carriers has created a
‘carrier within a carrier’ (CWC) within the last
Air New Zealand
10 years to combat low-cost carriers threatening
Qantas Airways
35%
35% their market shares. Freedom Air is Air New
Zealand’s CWC and JetStar is Qantas’. Pacific
Blue is Australian-based Virgin Blue’s entry into
the Trans-Tasman and is the leading low-cost
carrier in the market, providing service from the
three major New Zealand airports.
The international airlines in the market are a
geographically diverse group. The largest, in
Pacific Blue
7% Emirates terms of market share, is Emirates, based in
Lan Chile 9%
1% Dubai, UAE. Three Asia Pacific carriers operate
Freedom Air International
Garuda Indonesia 9%
in the market: Royal Brunei, Thai and Garuda
1%
Indonesia. Two South American carriers take
Figure 2. Airlines serving Trans-Tasman market, 2004 advantage of fifth freedom rights and the

© 2007 The Authors 349

Journal compilation © 2007 Victoria University of Wellington

geographical location of New Zealand in rela-
tion to their home countries and Australia: LAN,
based in Chile, and Aerolineas Argentinas,
based in Argentina.
There are two distinct markets within the
larger Trans-Tasman market: Auckland–Australia
and Christchurch–Australia, and New Zealand
Secondary Airports–Australia. Wellington is
unique because the physical constraints of its
airport limit the types of aircraft that can provide
service. The rest of the examination is along this
market divide.
In the Auckland–Australia and Christchurch–
Australia markets, the influence of two carriers,
Emirates and Pacific Blue, is clearly observed.
This is in addition to the heavy influence of the
incumbent carriers, Air New Zealand and
Qantas. The impact is especially observed in the
Christchurch–Australia markets. The largest
market, Christchurch–Sydney, shown in Figure
3, has two growth periods: the first was between
1999 and 2001, which can be attributed to the
finalisation of the Single Aviation Market Agree-
ment, and the second was between 2003 and
2004. This second growth spurt is particularly
interesting, attributable to the announcement
and eventual entrance of the successful
Australian-based carrier Virgin Blue (serving the
Tasman under the Pacific Blue brand). In the last
three months of 2003, both Air New Zealand
and Qantas increased capacity in the
600000
500000
400000
Passengers
300000
200000
100000
0
1994 1995
Figure 3.
350
T.M. Vowles and S. Tierney
Christchurch–Sydney market on the heels of
Pacific Blue announcing the beginning of their
new Trans-Tasman service, basing their opera-
tions at Christchurch. Qantas, in particular, was
wary of Pacific Blue’s market entry, competing
with Virgin Blue since the low-cost carrier’s
inception in August 2000. The speculation is
that the increase in capacity was also the result
of both carriers trying to pre-empt Emirates’
entry into Christchurch. Pacific Blue entered the
market in March 2004, and the result over
the 15 months from their announced entry on
the Trans-Tasman was an over 25% increase in
the number of passengers in the market.
Pacific Blue’s impact is seen in Christchurch–
Brisbane, the first market Pacific Blue entered. In
the decade before Pacific Blue’s entry, the market
was flat in terms of the number of passengers in
the market. Part of the explanation for the flat
growth in passenger numbers is attributed to
Air New Zealand offering low-fare service in a
competing market, Christchurch–Gold Coast,
using Freedom Air, its low-fare CWC beginning
in 2002. As was have seen in the Sydney–
Christchurch market, the entry of Pacific Blue
stimulated the market, creating an additional
116 171 passengers, an increase of over 80%.
Similar results occurred in the Christchurch–
Melbourne market, where the entry of two car-
riers, Pacific Blue and Emirates, stimulated huge
market growth in what, for over a decade, had
Christchurch-Sydney/Melbourne/Brisbane
Brisbane
Melbourne
Sydney
1996 1997 1998 1999 2000 2001 2002 2003 2004
Christchurch Trans-Tasman markets
© 2007 The Authors
Journal compilation © 2007 Victoria University of Wellington

been a fairly stagnant market in terms of passen-
ger growth. The new carriers helped increase the
number of passengers in the market by 78 355,
an increase of 49%.
What is apparent in the Christchurch–
Australia markets is the positive effect competi-
tion has on the market. While fare data are not
available for any of the markets, past research
(Windle and Dresner, 1999; Vowles 2000)
shows the entry of additional airlines into a
market, especially low-fare carriers, leads to
lower fares and an increase in the number of
passengers in the market. While the two carriers
that entered the market, Pacific Blue and Emir-
ates, are on opposite ends of the airline spec-
trum in regard to business plans, their entry
fuelled the market growth. This growth in pas-
sengers is a boon not only for Christchurch but
for the whole South Island as well, because the
airport is the major gateway to the South Island
and through it flow a large number of the tour-
ists, one of the prime economic drivers for the
South Island.
The developments in the Auckland–Australia
market is route dependent and are the results
of a host of different factors. In the major
markets of Sydney, Brisbane and Melbourne,
the resulting growth in the market is attribut-
able to market liberalisation and the granting
of fifth freedom rights. Emirates takes advan-
tage of this liberalisation to create a very influ-
ential market position. The carrier offers daily
service to the three major destinations on the
Australian east coast. This service is part of
the carriers continuing service to Singapore,
Bangkok and Dubai. Emirates gained access
to the market after the Australian government
granted access as part of a larger plan to
allow Qantas and Air New Zealand to create
a larger alliance in 2003, which was eventu-
ally denied on the grounds of being too
anti-competitive.
Carriers such as Emirates are partially using
flights to and from New Zealand as an alterna-
tive to parking aircraft in Australia to wait for
return times that fit within curfews and other
operating restrictions and/or may be doing
better out of freight traffic than passengers
(Tourism Australia, 2005). Emirates is not the
only example of this type of service in the
Auckland–Australian market as the other fifth
freedom airlines in the Trans-Tasman operate a
© 2007 The Authors
Journal compilation © 2007 Victoria University of Wellington
Geographic impact of ‘open skies’ policies
very similar geography-specific routing, albeit
on a smaller scale than Emirates. Emirates’
strategy is successful; by 2004, it was the third
largest carrier, behind Qantas and Air New
Zealand, with nearly 10% of the market.
Another indication of the carrier’s success,
especially out of Auckland, is the war of words
between Air New Zealand, which sees Emirates
as a very credible competitor, and Emirates
concerning the latter’s commitment to New
Zealand. Air New Zealand’s Chief Executive
Officer Rob Fyfe appears envious of the
Emirates’ relationship and position with the
UAE government and how the airline is seen as
a vital component to the success of the coun-
try’s development – something he does not feel
Air New Zealand has with New Zealand despite
the government’s majority ownership of the
airline (Van de Bergh, 2006).
In addition to the introduction of fifth
freedom carriers into the Trans-Tasman market,
liberalisation also allows low-cost carriers the
opportunity to provide service to not only the
major centres in New Zealand but also to some
of the smaller centres, creating a new network
of direct international connections in the market
that did not previously exist. The main driver of
this smaller airport growth has been Air New
Zealand’s own low-fare CWC, Freedom Air.
The strategy in creating a CWC varies widely
throughout the airline industry, but one of the
more common uses of CWCs is as a competitive
response to the entry of a low-cost carrier into
a market dominated by an incumbent carrier
(Graham and Vowles, 2006). Air New Zealand
created Freedom Air in response to the entry
of Kiwi Travel International Airlines into the
Hamilton–Australia market in 1995. Before
Kiwi’s entry, Hamilton passengers would have
to make a connection in Auckland before con-
tinuing on to their Australian destination or skip
using the Hamilton airport entirely and drive
an hour and half to the Auckland airport to fly
to Australia. Kiwi Travel International Airlines
also operated service from Dunedin and, for
a brief while, Christchurch. The competition
between the two carriers was brief as Freedom
Air drove Kiwi Travel International Airlines out
of the market and subsequently out of business
within a year.
Figure 4 shows these niche markets are rela-
tively successful in attracting passengers. Air-
351

140000
120000
100000
Passengers
80000
60000
40000
20000
0
1994 1995
Figure 4.
ports without scheduled international service
were seeing a significant growth of passengers
as a result of Freedom Air’s service. The service
initially concentrated on the three major Austra-
lian centres and the Gold Coast/Coolangatta, a
holiday destination in southern Queensland.
This strategy of targeting price-sensitive travel-
lers is not without its problems as Freedom
Air recently terminated all of its Melbourne
service.
Conclusion
While it may not be the biggest international air
passenger market in the world, the Trans-
Tasman market between Australia and New
Zealand is one of the most diverse and com-
petitive. The market itself can be broken into
two distinct markets: Auckland–Australia and
Christchurch–Australia, the first sub-market;
and New Zealand Secondary Airports–
Australia, the second sub-market. It is along this
market division that the various operational
results of market liberalisation are observed. In
the larger markets, liberalisation has brought
third-country airlines into the market, with the
national ‘flag carriers’, Qantas and Air New
Zealand, continuing to dominate the market in
terms of passengers carried. The majority of the
carriers in the market under fifth freedom rights
have a minimal impact in the market, with Emir-
352
T.M. Vowles and S. Tierney
New Zealand Secondary Airport Growth
Dunedin
Hamilton
Palmerston North
1996 1997 1998 1999 2000 2001 2002 2003 2004
New Zealand secondary airport growth
ates being the exception as it holds 10% of the
market and continues to grow and exert pres-
sure on Air New Zealand. This growth and that
of Pacific Blue, the dominant low-cost carrier in
the market, has led Air New Zealand and
Qantas to try various strategies to try and stem
the growth of these two carriers.
The first and somewhat successful strategy is
the introduction of ‘carriers within carriers’ tar-
geted especially towards Pacific Blue. Freedom
Air is used carefully in the Auckland–Australia
and Christchurch–Australia markets to target
those passengers and markets that are price-
sensitive. Qantas’ JetStar is new on the Trans-
Tasman but is used in the same manner as
Freedom Air out of these airports.
The second approach by Qantas and Air New
Zealand was an attempted alliance on the Trans-
Tasman and domestically within New Zealand.
The alliance would have seen the carriers
jointly creating flight schedules and selling seats
on routes where both operate. They believed, in
their submissions to the various regulatory
bodies in both countries, the proposed alliance
would be beneficial for the carriers and their
passengers, allowing them to stay competitive
against both types of competitive carriers in the
market (Van de Bergh, 2004). The alliance was
originally proposed as the only way Air New
Zealand could continue competitive service on
the Trans-Tasman against a financially stronger
© 2007 The Authors
Journal compilation © 2007 Victoria University of Wellington

Qantas. Subsequently, Air New Zealand turned
around its financial fortunes, becoming more
competitive. The alliance was still pursued but
this time as an economic strategy to counter the
growing number of competitors in the market.
Ultimately, the alliance was denied on both
sides of the Tasman as being ‘very anti-
competitive and not in public interest’ (ACCC,
2003).
Air New Zealand and Qantas are not deterred
by this setback in their mission to cooperate on
the Trans-Tasman market, opting to pursue a
code-sharing agreement in the market as a
tactic to stay competitive. Code sharing is an
agreement between two airlines allowing either
carrier to put its two-letter identification code
on the flights of the other. It allows carriers to
offer seats on flights that they do not physically
operate. The goal of code sharing between Air
New Zealand and Qantas is to reduce surplus
capacity and utilise aircraft more efficiently.
Preliminary indications are that various groups,
including tourism groups, airports and travel
agents, are sceptical of the arrangement, believ-
ing it will lead to an increase in fares and a
decrease in passengers.
In the second sub-market, New Zealand
Secondary Airports–Australia, the main issue is
not one of competition but one of access.
Before the mid-1990s, the only access cities
such as Hamilton and Dunedin had on the
Trans-Tasman were flights connecting through
larger airports in Auckland and Christchurch.
Air New Zealand’s use of Freedom Air initially
to combat Kiwi Travel International Airlines
evolved into a product opening up secondary
New Zealand cities to direct Trans-Tasman
access. This creates a number of niche markets
focusing on serving two types of traffic, leisure
and visiting friends and family, which are both
price-sensitive. The access afforded these sec-
ondary markets is not as broad as in the larger
centres but has shown to be a sustainable one
in limited markets.
The Trans-Tasman market is a highly com-
petitive market because of the diversity of the
markets within the larger market and the liber-
alisation of competition. The biggest beneficia-
ries of this competition are passengers, along
with air transport-dependent industries, such as
airports, hotels and other travel-related indus-
tries. As the market continues to develop and
© 2007 The Authors
Journal compilation © 2007 Victoria University of Wellington
Geographic impact of ‘open skies’ policies
evolve, incumbent carriers such as Qantas and
Air New Zealand are determined to maintain
their large market through a number of different
mechanisms, including strategies such as CWC
and code-sharing agreements. Lessons learned
in the Trans-Tasman in regard to liberalisation
and its associated strategic outcomes can be
applied to newly liberalised air transport
markets around the world.
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